Transcript: Peninsula Energy (PEN) - Producing Uranium in 2023

Morgan Leighton
December 14, 2021

Peninsula Energy Limited is an ASX listed company that wholly owns the Lance Uranium Projects in Wyoming, USA which are in transition from an alkaline in-situ recovery to a low pH in-situ recovery operation, with the aim of achieving the operating performance and cost profile of the industry-leading global uranium production projects.

The alkaline in-situ recovery uranium operations commenced in December 2015 and ceased in July 2019 primarily as a consequence of lower than expected recoveries.  A Feasibility Study on the low pH in-situ recovery process was published in September 2018 and demonstrated the robust economics of the proposed transition.  Since 2018 research studies and a 2019 field trial in a previously mined area have produced results that strongly validate the 2018 Feasibility Study parameters.

The Lance Projects are the ONLY US-based uranium project authorised to use the industry-leading low pH in-situ recovery process.  Over the next 12 to 18 months the focus is on site-specific technical, process development and optimisation activities.The Company commenced the MU1A low pH field demonstration in August 2020.

We Discuss:

00:00 - Company Overview

00:56 – Extension Announcements, Recovery Grade & Report Timings

05:25 – Closed Space Patterns, Field Demonstration & Oil Recovery

10:30 – Field Demonstration Conclusion, Economic Study Phase & Capital Raise

17:40 – Additional Contracts, Moving Averages & Utilities

22:22 – Economic Actions, Modifications & Technical Risks

25:07 - Outro

Wayne Heili: Hello, it's Wayne Heili, with Peninsula Energy. I'm the Managing Director and CEO. Peninsula has been on a journey to improve its technical aspects for the Lance project in Wyoming. We've been doing some field demonstration work and recently we've come to the market with news that we've accelerated the field demonstration and concluded that effort, and that brings this company a lot closer to being ready for the return to production at Lance when the markets are ready. Peninsula Energy today is well funded, we have contracts which we continue to serve and generate cash revenue for the company. We're looking forward to discussing these field demonstration developments in particular, with the audience today.

Matthew Gordon: Which is handy as that's why I called you; I wanted to understand a little bit about the journey that you went on with that. When we first started speaking, you had a technical problem to solve. And part 1 of the things you needed to do was these field demonstrations. You did, however, make an announcement a few months ago that you needed a 6-month extension to that. That made people a little nervous. Then, the next thing you did was to deliver within the original timeframe. 

Wayne Heili: That's right. We're very cautious when we guide to the market. We guided that the field demonstration was going to take longer, based on these larger-scale patterns that we were operating the field demonstration under. We recognized along the way though, that if we contracted the patterns, if we made smaller patterns, we could get the same data that we were looking for in a much shorter time frame. Therefore, we set about that. We recognized that the uranium markets have been shifting and improving, and the time to market is going to be critical for any company. We adjusted our field demonstration pattern sizes. We processed the volumes a lot quicker and we were able to obtain data that will be valuable for us in reassessing our technical assumptions for an updated feasibility study in the future. The main thing was that initially we said, given the path were on, it's going to take a little longer. We changed the path rather than stay on the path, and because we changed the path, we were able to deliver the results that we needed a lot quicker and come to the market and share now that we've concluded the field demonstration. 

Matthew Gordon: What was the problem that you were trying to solve? We originally talked about low pH solutions, now this is a question of: what's the potential recovery grade for you? What did you get out of it? 

Wayne Heili: In the laboratory, you are using column testing and very discrete samples of uranium, and you can get a lot of information about uranium grade potentials and such, but there's no substitute for what you will be doing in the field as a commercial operation. For us, it was to demonstrate that the chemistry really works, demonstrate that the pattern configurations that we have in mind would work, and that's where we had to actually make some adjustments. We also had some other plant technical things: how we were going to manage solids that are generated when we bring the pH down. How are we going to deal with limitations of ion exchange in the recovery plant? Thus, we've done a lot of technical innovation. We've done a lot of testing of concepts and proving of concepts so that when we do go into commercial operations, this field demonstration is going to help us put our best foot forward. 

Matthew Gordon: People want to understand whether you're going to be able to extract uranium economically, so what data here feeds into those sorts of reports, also, what would the timing of any of those reports be, for you to be able to say to the market: not only have we solved the problem technically, and you've talked about peak recovery grades of 150 PPM in there, people want a sense of the economics here. What's the path or process to being able to talk that language? 

Wayne Heili: You bet. We looked at actual field consumption rates for acid, which is one of the cost drivers for the low pH. We looked at pattern configurations and how that impacts acid consumption. We looked at pattern configuration sizes and how it impacts the rate of recovery from the field. Hence, we've taken and obtained some very real and very useful data by the field demonstration. The economic question is the next one for us to answer. We are taking that data. We're looking at it. We're preparing the data and technical assumptions to enter that into an updated feasibility study, which I had imagined will launch in early 2022. 

Matthew Gordon: Would you mind sharing this? We saw in the press release a couple of diagrams, and for the people who like to get into the technical aspect, as some people claim to understand what ISR is - they don't. They just understand what the letters stand for typically. Are you able to talk us through where you were and then what you decided to do with these closed-space patterns, and how you laid that out? 

Wayne Heili: Certainly. The distance between the injection well and the recovery well in-situ recovery is really important. It determines what rate you can recover a poor volume, which is the effective amount of solution in the pattern. The distance between an injection well and a recovery well determines how much volume you have to address. Generally speaking, we can address the volume at the same rate - say, 20-25 gallons per minute. If it's a large volume, it takes a long time, at 25 gallons a minute, to address the whole volume. We shrunk the pattern size down to a small volume and we continued to process it at the same rate so we could achieve more volumes quicker. That's really what we did with the small pattern sizes. We were able to do 25 pour volumes, affected volumes of a small pattern, in a very short period of time. Where when we started out, we were addressing a pour volume of the large patterns in essentially 2-months’ time. Therefore, if we had stayed on that pace to get 225 pour volumes, you're talking about several years. As a test goes, that's not a very effective test.

It's also important to keep in mind that when you establish patterns, it's easier to go from large patterns to small patterns by shrinking the size. When we activated the small pattern within the large pattern, it had already been acidified, it had already seen production solution, so it responded very quickly and it responded very well, as a small pattern would. We were able to see the entire recovery curve. It matches nicely to our assumptions from the laboratory, and that's what a field demonstration is about: demonstrating that the technical ideas that you have are good ones.

Matthew Gordon: It's interesting; when we talk to geologists and they are moving into drilling, and this is regarding oil and gas recovery, they need to manage the field. You guys do here too. Obviously, if you are digging for gold, you decide to dig for gold here, and there it is, and we can see with high-grade stuff where it tends to go to. Likewise, with the flow of liquids through your field, you're trying to manage that. I'm trying to understand the way that these smaller enclosed patterns, by understanding each one of those, you can see how they join up or how they'll behave when you do something further out. Is that how it works? Is it like some sort of mechanic jigsaw puzzle of trying to work out where the pieces will be when you make a move? 

Wayne Heili: Yes. Using a small pattern to achieve the test objective doesn't mean that we'll use that size of pattern in the future. It's a pilot. Consider it like a pilot-scale test. Every pilot scale is a much smaller scale test than what's actually commercialized. We went from a pattern that was larger than anything that we had ever used before at our site. Then we reduced it in size to something smaller than we've ever done before. The smaller it is does not mean that we have to use that size in the future. What it means is that that size has given us the field data that we need to make the technical demonstrations that we wanted to make. 

It is very different to somebody who's trying to prove a resource. Peninsula Energy's been focused on optimizing and improving its production capabilities. We are a different company in many ways to most of the folks that you talk to. 

Matthew Gordon: I understand that from our previous conversation. What I'm trying to work out is what this says to the market? You can see what's happening in the uranium space at the moment; people are getting a little bit excited. It's fallen away slightly towards the end of this year, because people are slightly distracted during tax loss season apparently, and they are waiting to see what spot does next I suspect. You guys have seen great gains this year, along with many of your peers, but you've got to play into the market that's coming. You're are a US-based, Wyoming-based, uranium producer. You are an ASX company but nevertheless, a US-based uranium company. How does this work feed into that narrative for the US market? We've talked about the US reserve. We've talked about US companies fitting into utilities. That narrative hasn't gone away. This information says, we are going to be a producer. We'll come back and let you know about the economics shortly, but that's a question of what price do we need? Spot price or contracting? 

Wayne Heili: Absolutely. I think the accelerated conclusion of the field demonstration shows to the market Peninsula's. intention to aggressively move after production. We anticipate that 2022 is going to be a very good year in the uranium space. We need to be prepared to be a producer. We need to put our project back online, and we need to advance the feasibility study and the final economic piece as quickly and aggressively as possible in 2022 so that we can meet the market demands that we foresee as they continue to grow in 2022 and 2023. If you have uranium in your name, and you can't produce uranium, you can't profit from the up market.

Matthew Gordon: That's a conversation for a whole other time: companies talking about uranium, but not actually able to produce uranium. I want to focus in on this one. These field tests allow you to accelerate into the economics. You talked about starting the process in 2022, but how quickly can you move through them? How important were these field tests to your ability to quickly move through the economic study phase? 

Wayne Heili: We did learn from the field demonstration, and that learning means that we're going to reassess some capital needs and operating costs. We're going to put that into the complete economic picture and economic projections of a feasibility study in the near term, but we have to go out and scope out what those capital costs are, so that we have a quality economic study. We're very deliberate; we're going to make decisions based on good information. We're not going to make decisions in haste based on half of the information that we need. 

Now we've hired a person who's been very expert and proficient at preparing feasibility study economics and engineering works - Mr. Brian Pile. He came on board with us in November. It was a very timely addition because he will be taking that data, going out and getting the cost information that we need. He's done this multiple times as a consultant in the industry and he's also worked in the industry in Nebraska, Wyoming and Kazakhstan in in situ recovery facilities. He's a very experienced industry veteran who has a portfolio of feasibility study analysis under his belt. He's very capable to take the modelling that we need and putting it into the shape that we need to make good decisions as company. 

Matthew Gordon: I like what you've done here. Today we hired someone called Paul Webb, to look after our internet. You've hired Brian Pile and also Ken Milmine as well. That's good. There's a symmetry to that. 

Wayne Heili: Yes, in order to move forward rapidly, we needed the right talent in place. We were lucky to be able to attract that talent to this company. They recognized that we're moving in that direction. It's a very exciting time for Peninsula. We're growing, we're expanding, we're getting ready. 

Matthew Gordon: You are, but my question to you was: how quickly can you do it? ISO is one of the cheaper capex-type uranium plays, so we're not expecting you to walk back and say that your capex requirements are USD$400M; far from it. We're expecting you to come in with a low capex. You've sorted out the balance sheet, was that at the beginning of this year of the end of last year. When was the raise, beginning of this year? 

Wayne Heili: We did a capital raise mid-year, which we used to purchase about 300,000lbs uranium.

Matthew Gordon: I was referring to the wiping out of debt. 

Wayne Heili: That was actually about a year and a half ago. Our balance sheet is strong right now. We closed the last quarter with about USD$8M. We had some inflows from some sales subsequent to that, which improved our cash position. On top of that, we have a uranium inventory of over 300,000lbs, presently valued at USD$13M-$14M. That gives us a lot of flexibility in moving forward. We do need some funds to bring the project back into production, to build some new well fields, to do the transition from alkali into low pH. All of that's going to be done pretty quickly. We've been guiding that we could do it in about a 6-month timeframe, from an investment decision, to have the project starting back into production and ramping up. 

Matthew Gordon: Let's go there. What you don't want is a bunch of shareholders nervous that you're going to dilute the heck out of them. The timing of the market, your expectations for 2022-2023, in terms of what's going to happen is important as to how you play this, because your timeframe to making FIS is what? 

Wayne Heili: I think it's important for our shareholders to recognise that first of all, the commercial deliveries of uranium that we have scheduled for 2022 are covered with purchases. We don't have, under our present contract portfolio, the need to produce in 2022, but I believe that we should be making that investment decision and putting our project into a state of readiness in 2022, so that we can be feeding pounds into the market in 2023.

Matthew Gordon: Perfect. Understood. That's really important and feeds into the next thought, which is: if the price in the market is ready and where you feel you need it to be to not just economically extract uranium but to also make a reasonable profit, and you need margin - the name of the game is to make money, so do you think that the FID would be at the point where you felt that you could go and get not just cheap money, but stack up on the debt, because you'll have contracts in place. I know you've already got contracts, but do you need additional contracts in place to benefit from whatever debt may be available to you?

Wayne Heili: The contracts that we have in place would be adequate if we followed a debt model. We certainly have a lot of flexibility right now. We're sitting on a reasonable amount of cash and inventory, which could be liquidated. The decision isn't going to be made with the market at its present level, which means that when the decision to reinvest in the project is made, I believe we will be in a better or more improved uranium market, there should be good demand for our shares and for the activities that we're pursuing. We'd be raising capital to put a project into production if we do decide to use an equity raise model.

Matthew Gordon: This is the bit that intrigues me, as it did when I was in banking: what confidence did we have as bankers, in this case the thematic is uranium, because the recovery will have been short, not yet long-lived, so you've got to factor in moving averages, the company's competence and ability to actually produce. With regards to certainty, even with contracts in place, what could you say? Do those contracts give you the certainty so that, as a banker, I would say, irrespective of what the spot price does, I have got fixed-price contracts in place. I don't know what the average number is in terms of the remaining contracts for you, but that gives us a profit, and therefore you as bankers should feel comfortable with that? 

Wayne Heili: Our contracts have fixed prices that are going to be above USD$50/lb, and they extend out to the year 2030, which should give a great deal of confidence to any lender. As a company, we'd hope to secure additional contracts so that we can ramp up our project to higher production rates over time. It's a balance between watching a rising market and pulling the trigger, and making sure that you have the economic and revenue base that you need to secure the funding that you want.  

Matthew Gordon: There is production and then there is production, in the sense that just getting into production to be able to say to utilities: look, we told you we could do it technically, but you are not producing a lot. In that case, there are some pros, as they are in production. On the other hand, being able to say we'll be producing 1Mlbs/year, that's another conversation entirely. How do you play that? 

Wayne Heili: My view is that the utilities want to contract with established producers. They will contract when they must with producers that wish to go into production, or hope to be in production, but the bottom line is that the utilities are looking for the established producers to contract with. So, if you want to be in that camp, if you want to be an established producer, the first step is to produce. 

Matthew Gordon: Okay, so go early, ramp up?

Wayne Heili: Yes, and use that forward momentum. Do it systematically and sensibly. I don't think it's possible to contract an entire mine's production into this market without first being in production. 

Matthew Gordon: I'd agree with that, and it does come back to the earlier conversation in that there are a lot of CEOs who will perhaps feel that if the market does move as expected next year, they will actually have to go and do something: they will have to show that they can get into production. They will have to put the money together to show that they can do this economically too. Some of them will be capable of doing that now, but there will be others that may fall over. Is that a demonstration of the sentiment momentum play versus the 'old hands'? A few people like yourself, who have been there and done it before are quite keen to tell me that it's harder than it looks. 

Wayne Heili: It is harder than it looks, and that's one of the reasons why we did a field demonstration. We're checking off that technical risk now. We checked off the regulatory risk, we checked off the technical risk, and we have position this company really strongly to be prepared for financing the resumption of production. The lenders are going to want to know that the technical risk is low. That's why we do something like a field demonstration. We're leaps and bounds ahead of the people who have a permitted project but haven't built or operated a thing. We have a built facility that needs some modifications. We've tested how those modifications will perform land and we've really taken off the technical risks. 

Matthew Gordon: Interesting times ahead. Wayne, thank you for breaking that down. We put up the model that you've put in the press release, to show people your vision - a picture paints a thousand words, right? I'm looking forward to seeing how this plays out in the new year. I think there are some great expectations around some of the financial players in the space, stepping up, and obviously, and this thing with NYSE should be an interesting moment to see what the US market then does for various uranium companies in North America. Thank you for your time today. 

Wayne Heili: You bet. 2022 is right around the corner. It's a year to look forward to if you're a uranium investor. 2021 was a good year, but it was just building the foundation, just like Peninsula has been building its foundations. In 2022, the uranium market looks to be tremendously well set for a good run. Peninsula has been positioning itself to run with the market. Thank you for your time.

To find out more, go to the Peninsula Energy website